Ch6_class_09 - Chapter Six Demand Properties of Demand...

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Chapter Six Demand
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Properties of Demand Functions Comparative statics analysis of ordinary demand functions -- the study of how ordinary demands x 1 (p 1 ,p 2 ,m) and x 2 (p 1 ,p 2 ,m) change as prices p 1 , p 2 and income m change.
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Own-Price Changes How does x 1 (p 1 ,p 2 ,m) change as p 1 changes, holding p 2 and m constant? Suppose only p 1 increases, from p 1 to p 1 ’’ and then to p 1 ’’’.
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x 1 x 2 p = p Fix p 2 and m. p 1 x 1 + p 2 x 2 = m Own-Price Changes
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Own-Price Changes x 1 x 2 p 1 = p 1 ’’ p 1 = p 1 ’’’ Fix p 2 and m. p 1 = p 1 p 1 x 1 + p 2 x 2 = m
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x 2 x 1 p 1 = p 1 Own-Price Changes Fix p 2 and m.
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x 2 x 1 x 1 (p 1 ’) p 1 x 1 (p 1 ’) p 1 x 1 Own-Price Changes Fix p 2 and m. p 1 = p 1
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x 2 x 1 x 1 (p 1 ’) x 1 (p 1 ’’) p 1 x 1 (p 1 ’) x 1 (p 1 ’’) p 1 p 1 ’’ x 1 Own-Price Changes Fix p 2 and m.
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x 2 x 1 x 1 (p 1 ’’’) x 1 (p 1 ’) x 1 (p 1 ’’) p 1 x 1 (p 1 ’) x 1 (p 1 ’’’) x 1 (p 1 ’’) p 1 p 1 ’’ p 1 ’’’ x 1 Own-Price Changes Ordinary demand curve for good 1 Fix p 2 and m.
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Own-Price Changes: Perfect Complements What does demand curve for a good look like for a perfect-complements utility function? } { U x x x x ( , ) min , . 1 2 1 2 = First, the ordinary demand functions for commodities 1 and 2 are
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Own-Price Changes . ) , , ( ) , , ( 2 1 2 1 2 2 1 1 p p m m p p x m p p x + = = With p 2 and m fixed, higher p 1 implies smaller x 1 and x 2 .
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